Xbox profits revealed in new FTC leak

Newly leaked documents reveal our first real look at Xbox's profits.

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Microsoft is very selective in what data it releases on its various divisions. This includes gaming, which is now Microsoft's fourth best-earning business in terms of revenue with $15.4 billion earned in FY23. Every quarter, Microsoft will report three metrics on the Xbox business: content & services earnings, hardware revenues, and a finalized Xbox gaming number. Sometimes Microsoft will also release a new Xbox Game Pass figure, but they haven't done that for some time.

This is a big departure from Nintendo and Sony, both of which reveal revenue and profit numbers for their games businesses. Microsoft, however, has never discussed Xbox's profits. Now thanks to a series of documents and files that were accidentally leaked as part of the FTC v Microsoft federal trial, we have an idea of how healthy Xbox actually is.

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According to an internal Gaming CSA (Customer Solutions Area) slide deck, the Xbox games division had an accountability margin of $1.5 billion for the first 9 months of FY22 (July 2021 - March 2022). So what exactly is an accountability margin?

In testimony from the FTC trial, Xbox gaming CEO Phil Spencer explains:

Q On the other side we have Sony with PS5 and a very analogous hardware subsidy. Sony's gaming P&L runs at lower GM and AM percentage margins than our gaming business, even though they have 2 times the console installed base.

GM means gross margin, right?

Gross margin percentages.

Q And AM means accountability margin?

Accountability margin percentage, yes.

Q Is that like profit?

That's the percent of your revenue that you keep in profit.

According to our findings, Xbox gaming had a 12% accountability margin (AM) for 9 month period in FY22. However, in the aforementioned testimony, Spencer says that "the Xbox business today runs at a single-digit profit margin."

Comparing this number with the other Big 3 players isn't exactly straightforward. The accountability methods may be different and we're not entirely sure how Microsoft calculates its accountability margin, but it appears to be some sort of value target that the Xbox games division is trying to deliver on a specific profit basis.